As we now know, the COVID-19 virus has shut down or greatly diminished economies and industries throughout the world. Unfortunately, our industry is no exception. At LogicalWireless, we have spent decades serving clients throughout the world to ensure that they have consistent access to a high-quality supply of used iPhones and Samsung devices. We have seen numerous supply and demand shocks through the years, but none quite like this. This blog discusses the early effects of the COVID-19 pandemic and how the impact of the virus grew. Culminating in a dramatic slowdown in the industry. We then go on to discuss what we can expect moving forward.
Initial COVID-19 Impact: A Steep Reduction in Activity in China, Causing Ripple Effects in the Supply Chain
Beginning in mid-January and continuing through the middle of March. The global market for used smartphones began to see the impact of the virus due to the shutdown of China. China serves two very important functions in our industry. Firstly, China supplies the refurbishment market with parts that are used to bring devices to grade and prepare them for sale. China also provides demand for damaged and defective devices, due to the fact that many Chinese buyers have repair capabilities. Defective devices typically find their way to China by way of large traders in Hong Kong. Buyers in mainland China then repair these defective devices and distribute them throughout the world.
The initial impact of the coronavirus was, therefore, a steep reduction in the price of defective products. Due to the reduced demand from Chinese buyers. At the same time, the industry began to see a major shortage in the supply of parts that are used by companies that refurbish devices. Insurance companies like Asurion and Assurant rely on the refurbished phone market when sourcing replacement devices. Due to the shortage of refurbished phones, these companies began looking to the used phone market to satisfy their need for replacement phones. Because insurance companies with obligations to replace phones can always pay the highest price for these devices, the supply of high-grade devices in the market was dramatically reduced.
Stage 2 COVID-19 Impact: China Reopens and the Rest of the World Shuts Down
Despite the above-mentioned impacts of the COVID-19 virus in February and early March, the broader market for used mobile phones stayed strong. While the supply of higher-end devices was constrained, the continuing influx of supply from the recent trade-in cycle created ample opportunity in other segments of the market. In the middle of March, Chinese buyers also re-emerged, which further bolstered demand and added to a strong market. Apple reopened all 42 of its retail stores in China on March 13, 2020.
However, as China reopened, the rest of the world shut down. In Mid March, beginning with President Trump’s address on March 12, the industry quickly started to change. That same week, Apple shuttered all of its stores in the US. Major carriers like Verizon and AT&T soon followed suit. The following week, Governor Andrew Cuomo of New York announced that all “non-essential” businesses in New York were to close. This included LogicalWireless’s warehouse in Long Island. Soon, additional states followed, and soon after that, many nations started taking similar measures.
The above dramatic actions impacted supply and demand in profound ways. While the Chinese market remained active for some time, soon demand shocks began to be felt throughout the world. Entire countries like Ukraine and Nigeria have shut their borders to the importation of used phones. On the supply side, we have seen incoming volumes cut in half, and they continue to fall.
The Future
It is unclear how the future of the used phone market will be affected. In general, the market for used phones is relatively resilient and recession-proof, as the demand for used phones increases relative to new phones when customers are more price sensitive. Even during the current unprecedented crisis, demand, while limited, has continued in pockets throughout the world. While the industry is heavily dependent on mail services like UPS and Fedex, these services have remained open throughout the crisis.
The bigger uncertainty in the future will be how supply dynamics change post-crisis. Supply in the used phone market is heavily dependent on consumers upgrading to new phones and trading in their old ones. It is unclear when and in what volume consumers will visit carrier stores after the crisis is over. One major test over the next couple of months will be how consumers react to the release of the iPhone SE 2. With Apple stores still closed in the US, customers will have to order the devices by mail, and it is unclear how many customers will trade in their old devices by mail rather than in person. Another major test will occur later in the fall when Apple decides whether to go ahead with the release of the iPhone 12 or delay the launch. A delayed launch would clearly be negative for supply and would eliminate the prospect of a 5G iPhone hitting the market this year.
Reasons for Hope
It’s easy to focus on the negative aspects of what’s happening. There is no doubt that the coronavirus will result in contraction and uncertainty in the industry for quite some time. We know from past experience that stability is best for all market participants in the used phone business, and at the moment, this feels like a distant dream. However, it is important to realize that phones are and always will be absolutely essential. When supply does finally come around, used phones will be in higher demand than ever. The key right now is to remain nimble and flexible and to weather the storm. The good news is that anyone that has operated in the used phone industry has a lot of practice at this.
To conclude, our team at LogicalWireless is monitoring the situation closely. We will do our best to open up new avenues of supply and will continue our commitment to enabling the success of our customers. Our hope is that all of our customers stay safe and healthy during this time of deep uncertainty so that we can emerge with an even stronger partnership when the clouds have parted.
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